The FCA (Financial Conduct Authority UK) recently announced a plan for tougher regulations of crypto assets with consumers likening cryptocurrency investing to “gambling”.
Brits owning crypto currencies as part of their financial portfolios have more than doubled between 2021 and 2022. This is an incredible growth rate when you consider how little we know about bitcoin besides its vulnerability. Technically it is an asset, but in reality, is it an investment in the true sense of the word, or a gamer’s spin on a virtual roulette wheel?
“Investments can go down as well as up”. We are all familiar with this ubiquitous caveat.
But with ever-increasing crypto trading schemes popping up (and down), should the caveat read “Your crypto assets could bomb at any time, or you might polish your shiny new Ferrari whilst encouraging others to join up!”
The questions being asked are, should the Financial Conduct Authority (FCA):
- Regulate crypto as an Investment;
- Issue warnings alongside its marketing;
- Or ban it and such ‘schemes’ altogether?
PLEASE NOTE: We, Greycoat / Money Life Balance do not comment or advise on such crypto schemes as they are not investments and not regulated.
We learn about you, your lifestyle, your assets and your future plans to help build a Lifestyle Financial Plan to help you achieve the future you deserve.
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The Financial Conduct Authority (FCA) recently announced a plan for tougher regulations of crypto assets, such as Bitcoin.
Recently published research undertaken for the FCA showed that in August 2022, nearly five million UK adults owned crypto-assets, typically crypto-currencies such as Bitcoin and Ethereum. That was more than double the number in 2021, despite a drop of 75% in the total market value of crypto assets between November 2021 and June 2022.
The degree of crypto’s volatility puts such investments in serious jeopardy. In fact, there is some question as to whether crypto should be classed as investment at all. Making decisions around what to include in your investment portfolio should always include professional advice.
Losses & Regulation
The FCA is understandably concerned about the spread of crypto assets.
Since the start of 2022, there have been several failures of crypto businesses that the regulator says has resulted in “significant losses for consumers”. Some such crashes hit media headlines, including the spectacular fall from grace of Sam Bankman-Fried’s FTX and the demise of the Terra/Luna stablecoin.
The FCA is in a slightly awkward position when it comes to crypto, because the government is anxious to “put the UK at the forefront of the developing global crypto-asset fund management sector”, in the words of the Andrew Griffith, Economic Secretary to the Treasury. Plans are well under way for the development and release to market of Britain’s own Bitcoin UK.
Banning crypto-assets or limiting them to institutional and high-wealth investors, is therefore not a straightforward option the FCA could adopt. In a simpler world, the regulator might well justifiably prefer an outright ban because of the demonstrably high risks involved in crypto.
Instead, the FCA is addressing the promotion of crypto assets to ensure that would-be purchasers are fully aware of the potential risk. From 8 October 2023:
- Risk warnings will make clear that consumers should not expect to be protected by the Financial Services Compensation Scheme or the Ombudsman Service if something goes wrong.
- Investment incentives and refer-a-friend bonuses will be banned.
- There will be a 24-hour cooling-off period for first-time investors.
Interestingly, the FCA consumer research shows the most common reason for buying crypto assets was “as a gamble”. That attitude matches the view of the Treasury Select Committee, which recently recommended cryptocurrency trading should be regulated as gambling.
The kind of attention that crypto assets are increasingly under, should serve as warning enough for those tempted to by-pass professional advice. The Committee said that “…cryptocurrencies such as Bitcoin have no intrinsic value and serve no useful social purpose, while consuming large amounts of energy and being used by criminals in scams, fraud and money laundering.” That viewpoint could actually make a good risk warning for the FCA to use.
In the meantime, the FCA’s concerns should be heeded:
The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
PLEASE NOTE: We, Greycoat / Money Life Balance do not comment or advise on such crypto schemes as they are not investments and not regulated.
We learn about you, your lifestyle, your assets and your future plans to help build a Lifestyle Financial Plan to help you achieve the future you deserve.
Please contact us HERE and let’s get started.